ECB’s Yves Mersch slams Facebook’s Libra as “siren call”

Maria Nikolova

Libra’s ecosystem is not only complex, it is actually cartel-like, warns Yves Mersch, Member of the Executive Board of the ECB.

Whereas the UK Government has downplayed concerns associated with Libra and the Australian regulators have stated they would keep an eye on Facebook’s virtual currency plans, the European Central Bank (ECB) appears to be way more critical in this respect.

Yves Mersch, Member of the Executive Board of the ECB, has today delivered a scathing speech regarding Libra.

Libra, which is scheduled for release in the first half of 2020, has behind it the very same people who had to explain themselves in front of legislators in the United States and the European Union on the threats to democracies resulting from their handling of personal data on their social media platform, Mersch stressed.

One of the most worrisome aspect of Libra, according to Mersch, is that its ecosystem is not only complex, it is actually cartel-like.

“To begin with, Libra coins will be issued by the Libra Association – a group of global players in the fields of payments, technology, e-commerce and telecommunications. The Libra Association will control the Libra blockchain and collect the digital money equivalent of seignorage income on Libra”, Yves Mersch says.

The Libra Association Council will take decisions on the Libra network’s governance and on the Libra Reserve, which will consist of a basket of bank deposits and short-term government securities backing Libra coins. Libra-based payment services will be managed by a fully owned subsidiary of Facebook, called Calibra. Finally, Libra coins will be exclusively distributed through a network of authorised resellers, centralising control over public access to Libra. With such a set-up, according to Mersch, it is hard to discern the foundational promises of decentralisation and disintermediation normally associated with cryptocurrencies and other digital currencies. On the contrary, similarly to public money Libra will actually be highly centralised, with Facebook and its partners acting as quasi-sovereign issuers of currency.

Importantly, Mersch warns that Libra lacks a global lender of last resort. Thus, it remains unknown who will stand behind it in a liquidity crisis situation. Libra is also devoid of the equivalent of a deposit guarantee scheme to protect its holders’ interests during a crisis. Moreover, the limited liability of the Libra Association members raises serious questions about their resolve to satisfy the claims of Libra holders with their full faith and credit, as central banks do with public money.

The ECB takes a close interest in market innovations that could directly or indirectly affect the Eurosystem’s control over the euro or shift some of its monetary policy to third parties.

“Depending on Libra’s level of acceptance and on the referencing of the euro in its reserve basket, it could reduce the ECB’s control over the euro, impair the monetary policy transmission mechanism by affecting the liquidity position of euro area banks, and undermine the single currency’s international role, for instance by reducing demand for it”, Mersch says.

Although some of Libra’s aims are legitimate, reductions in cross-border fund transfer costs and other efficiency gains can also be obtained through established instant payment solutions.

“I sincerely hope that the people of Europe will not be tempted to leave behind the safety and soundness of established payment solutions and channels in favour of the beguiling but treacherous promises of Facebook’s siren call”, Yves Mersch concluded.

Read this next

Digital Assets

DappRadar report: NFTs volume below $1 billion for the first time since June 2021

DappRadar’s July 2022 industry report found that blockchain games and their NFTs remain resilient amid a crypto winter accentuated by the debacle of Terra.

Digital Assets

Blockchain.com registers to operate crypto business in Italy

Blockchain.com had registered as a digital asset provider in Italy, following in the tracks of rivals who joined a special registry with brokerage regulator Organismo degli Agenti e dei Mediatori (OAM).

Digital Assets

Binance rolls out crypto card in Argentina with 8% cashback

Binance is launching its crypto debit card in Argentina, the first country in Latin America to have the product thanks to a partnership with Mastercard.

Digital Assets

Greece sends BTC-e operator Alexander Vinnik to US

Alexander Vinnik, an alleged Russian hacker accused of laundering $4 billion of criminal proceeds through BTC-e, has been extradited from Greece to the United States.

Retail FX

Saxo Bank reports weakest FX volume in 6 months

As many traders were away on annual summer leave, currency markets saw a relatively quiet period in July. Within that context, Copenhagen-based Saxo Bank has reported its monthly metrics, which showed a renewed decline month-over-month.

Market News

The Week Ahead: 5 August from David Madden, Market Analyst at Equiti Group

It has been an interesting week and despite a lot of negative news, equity markets enjoyed a positive run. US House Speaker, Nancy Pelosi, defied the warnings from the Chinese government and carried out a visit to Taiwan. The Beijing authorities moved military hardware close to the self-governed island to flex its muscles. Stock markets came under a little pressure as a result and risk-off assets like the Japanese yen and gold found themselves in high demand.

Opinion

Alina Strogonova of Muvon Payments: How Can Fintech Optimise Payments

Financial services in their conventional form are obsolete, according to fintech startups. New-age finance is constantly redesigning electronic money transactions and testing innovative solutions.

Digital Assets

No need for CFDs: BitMEX introduces leveraged FX perpetual swaps

Previously retail FX trading was mostly possible via CFDs (contract for difference). BitMEX’s FX perps allow both retail users and institutional traders to access FX markets through an exchange-traded contract.

Digital Assets

BEQUANT launches index measuring dollar against crypto

“Our research team has worked hard to quantify and capture the latest economic story into the broader crypto market.”

<